This study addresses, through an intensive supported rehabilitation (SR) and health management (HM) intervention the emerging public health challenge represented by the growing population of older persons with severe mental illnesses (SMI). This population has a high incidence of impaired functioning, institutionalization, and excess mortality, complicated by poor health care, resulting in a high rate of mental health service expenditures. Unlike interventions for younger persons with SMI, there are no controlled studies of the effects of rehabilitation for older persons with SMI. Furthermore, no studies address the considerable need for preventive health care in this population. The strong rehabilitative and health management needs of older persons with SMI, resulting in their current dependence upon high-cost, long-term care alternatives, represents a major human concern and public policy problem. To address this problem, this study will test a successfully piloted SR/HM intervention designed to enhance functioning and health, thereby decreasing use of high cost, intensive services such as hospitalizations and nursing home placement. The SR component consists of intensive group skills training sessions and supported community practice, and focuses on improving independent living and social functioning. The HM component focuses on improving health maintenance through the integration of psychiatric and general health care by nurse case managers who provide health care needs assessments, education, and facilitated access to preventive health care services. The proposed study is a randomized, controlled trial comparing the SR/HM intervention to Usual Care (UC) in 160 persons with SMI age 60 and older living in the community. The study will test three hypotheses: compared to older individuals with SMI receiving US, individuals receiving SR/HM will: 1) demonstrate improved performance on proximal outcomes of independent living skills, social skills, and skills for health management; 2) show improved functioning in independent living, social role functioning, and health management behaviors and overall health; and 3) experience reduced use of acute and long-term institution-based services, as evidenced by fewer emergency room visits, acute hospitalizations, and nursing home admissions.